Under the terms of the deal, Waste Management would buy Republic for $37 per share, a premium of almost 33% to Republic's closing price on July 11, the last trading day before the company's buyout proposal was disclosed. The proposal is above Republic's all-time high stock price. Moreover, Waste Management will pay Republic, which rejected Waste Management's earlier offer as inadequate, a fee of $250 million if the merger does not close because of opposition from the U.S. Department of Justice.
"Our $37.00 all-cash proposal clearly offers Republic stockholders a better and more certain value alternative than is contemplated in the Republic-Allied transaction," said David P. Steiner, Waste Management's CEO, in a press release. "We believe our proposal is clearly superior for Republic's stockholders and is designed so we can work cooperatively with Republic to structure a transaction that would benefit both Republic and Waste Management stockholders."
A combined Waste and Republic would create annual synergies of $200 million, $50 million more than the savings created by the Republic-Allied deal, according to the Wall Street Journal. The reason for Waste Management's interest in Republic is simple according to the paper: "Though smaller than Waste or Allied, Republic is generally regarded as the best-run trash hauler in the country, and its stock has outperformed its rivals."
Today would be described as being choppy disappointment at best. The markets started out strong on a government bailout proposal for GSE's but traders went right back to shorting financials on big gap ups. After today, we'll get major earnings reports coming on a non-stop basis and tomorrow we'll also start to see some key data around producer prices tomorrow morning. Here are today's unofficial closing bell levels: DJIA 11,052.10 (-48.44) S&P500 1,228.02 (-11.46) NASDAQ 2,212.87 (-26.21) 10YR T-Note 3.88% (-0.06%) 52-WEEK LOWS TOP ANALYST UPGRADES TOP ANALYST DOWNGRADES
Anheuser-Busch Companies, Inc. (NYSE: BUD) saw a gain as the company finally capitulated and agreed to be acquired now that InBev boosted its buyout offer price to $70.00 from $65.00.
Posted Jul 14th 2008 10:35AM by Tom Taulli Filed under: Deals
The largest waste disposal company in the U.S., Waste Management Inc. (NYSE: WMI), wants to get even bigger. The company announced today that it proposes to pay $34 per share – or $6.3 billion -- for rival Republic Services, Inc. (NYSE: RSG).
On problem here is that Republic is already the subject of a merger with Allied Waste Industries, Inc. (NYSE: AW) announced in mid June. Although, if you take a look at the Republic-Allied merger agreement, there are clauses that allow Republic to entertain alternative offers. What's more, it looks like Waste Management may have access to internal data.
All in all, Waste Management is highly confident it will get the deal done: the firm has a plan for dealing with antitrust issues (likely involving divestitures); the investment grade status should be maintained; and the dividend will remain intact.
Without the benefit of any due diligence, Waste Management believes the deal will be accretive in the first year and provide at least $150 million in synergies. Basically, there should be lots of room to rip out duplicative costs, as well as get efficiencies from scale.
Waste Management also announced today its preliminary figures for Q2. The company plans to generate revenues of $3.49 billion, up 3.9% from the same period a year ago. Earnings are expected to be $0.64 per share.
So far in today's trading, though, Waste Management's stock is off 5% to $34.75. Of course, Republic stock is 15.6% higher to $32.25, while Allied Waste shares are down 7% to $11.15.
Republic Services (NYSE: RSG) is recently trading at $33.22, above its close of $27.90 Friday.
Waste Management (NYSE: WMI) announced it made a proposal to acquire all of RSG outstanding common stock for $34 per shares in cash. Allied Waste (NYSE: AW) offered to acquire RSG on June 23 for 0.45 shares of AW for each share of RSG.
RSG overall option implied volatility of 31 is near its 26-week average of 30 according to Track Data, suggesting non-directional price movement.
Option Update is provided by Stock Specialist Paul Foster of theflyonthewall.com
"Executives from Waste Management (NYSE: WMI), a stock on our recommended list, presented the company's case to Wall Street at a conference sponsored by J.P. Morgan," says Bill Martin.
In his BullMarket.com newsletter, the advisor explains, "We reviewed the presentation from CEO David Steiner and CFO Robert Simpson and found the company's story to be quite compelling for long-term investors."
"Steiner began by outlining some of the basic drivers of the company's business. Waste Management is the nation's largest trash hauler, and he pointed out that it along with its two-largest competitors own two-thirds of the nation's landfill space.
"The percentage, he said, will only increase over time as municipalities, which for the most part own the remaining third, aren't investing in new capacity the way private industry is.
"Since the biggest cost component is the tipping fees charged by landfills -- it amounts to 40% of total costs -- the more landfill space the company operates, the more it is able to capture those fees from other haulers.
"Landfills also form the basis for the company's initiatives in transforming the methane gas that builds up naturally in landfills into fuel for its trucks. The company plans to invest $70 million this year in efforts to convert landfill gas to fuel.
Waste Management Inc. (NYSE: WMI) is the biggie in the trash business. But, things may get tougher.
According to a report in the Wall Street Journal [a paid publication], Allied Waste Industries Inc. (NYSE: AW) and Republic Services Inc. (NYSE: RSG) are contemplating a $6.5 billion merger (a stock-for-stock swap). The companies are the second and third largest trash haulers in the U.S., respectively.
Yes, it's not a sexy industry, but it's fairly recession-resistant. There are some pressures, though, such as higher energy prices. But, the industry has been increasing prices to accommodate for this.
And, of course, if Allied and Republic combine operations, that should mean even more pricing power. Actually, the total revenues would be about $9.3 billion or so.
Besides, Allied could use some help. The company's revenues have languished and the debt load is a hefty $6.7 billion.
In Friday's trading, Allied shares were up 7.7% go $15, as investors speculated on a possible deal.
In the equities asset class, there are show horses -- high-profile, glamorous stocks that receive considerable news coverage; and work horses -- lesser-known stocks that don't receive a great of coverage, but get the job done, nonetheless. Put Waste Management decidedly in the latter category.
Waste Management, Inc. (NYSE: WMI) is the No. 1 waste disposal company in the United States. The company provides collection, transfer, recycling and resource recovery services to 21 million residential, industrial, municipal and commercial customers. WMI operates more than 430 collection operations and 277 landfills.
Analysts like WMI's strategy to sacrifice collection volume in favor of maintaining its pricing strategy and margins.
But excluding restructuring charges, asset sale gains, and other one-time items, restaurant operator Denny's net income was $3.4 million, or 3 cents per share, down from $7.3 million in the same quarter a year-ago. Revenue fell 10% to $220.3 million from $244.4 million last year. Analysts polled by Thomson Financial had expected a profit of 4 cents per share on revenue of $216.4 million.
For the year, net income rose 14% to $34.7 million, or 35 cents per share, from $30.3 million, or 31 cents per share in 2006. Revenue fell 6% to $939.4 million from $994 million.
The company also said it expects revenue to fall in 2008 as it continues to sell restaurants to franchisees.
After falling in early trading Wednesday, shares closed up 15 cents, or more than 4%, to $3.58.
The first bit of bad news was that revenues for the quarter were $3.40 billion as compared with $3.44 billion in the year ago period. Net income for the quarter was $278 million, or $0.54 per diluted share, compared with $300 million, or $0.55 per diluted share, in the prior year period. The company claims that some of its financial problems had to do with labor friction in its California operations.
Waste Management does a lot of hauling from construction sites, so, with building volumes down, revenues were bound to take a shave.
Company executives said that the rest of the year would be a little light. "In looking at our full year 2007 earnings projections, the previously projected range of $2.07 to $2.11 per diluted share included a Section 45K tax credit benefit of $0.04 per diluted share in the second half of the year. We no longer expect to receive that $0.04 per diluted share benefit. After reducing the range by this $0.04 per diluted share non-operational tax item, we are confident we can meet the revised 2007 full-year earnings projection." Which is a fancy way of saying things are worse off than we thought.
Investors would think that there will always be garbage to take out, but a housing slowdown is undermining that, and there would be every reason to believe that the trouble could get worse. The shares are near their 52-week low, and if the construction business gets worse they will be lucky to hold that level.
Douglas A. McIntyre is an editor at 247wallst.com.
With the price of fuel growing each week, the search for America's next energy alternative grows even stronger. WR Hambrecht looked at Clean Energy Fuels (NASDAQ: CLNE), a California-based supplier of liquid & natural gas for vehicles, and they think they found a hidden gem.
Clean Energy provides solutions for fleets to run on natural gas as an alternative to gasoline or diesel. The company currently operates in 10 states and Canada, with plans to begin operation in Peru later this year. The first quarter of 2007 was the company's first profitable quarter since 2001, generating revenues by selling compressed natural gas, liquid natural gas, and to a lesser extent, by building, operating and maintaining fueling stations. They currently serve over 200 commercial fleets with 13,000 natural gas vehicles, including Waste Management Inc (NYSE: WMI), Enterprise Rent-a-Car, UPS Inc's (NYSE: UPS) fleet in Dallas and the Port of Los Angeles.
The key to Clean Energy's success lies in the continued increase in crude prices and the public's desire for cheaper alternatives. According to Hambrecht, natural gas vehicles emit "50-70% fewer emissions, save $5,000-$17,000 in fuel costs annually and use widely distributed and domestically available natural gas" compared to the standard vehicles used to day.
Not a bad start.
Clean Energy is currently in its growth phase and Hambrecht initiated coverage of the alternative energy stock with a Buy rating and an $18 target. They project the company to earn $0.03 in 2007 and $0.23 in 2008. Hambrecht believes Clean Energy's valuation, currently up $0.12 to $13.00 in mid-day trading, doesn't take into account the upside potential from the natural gas vehicle roll-out and estimates an addressable market over $20 billion.
With gas prices rising so fast, there's no reason natural gas should not be outfitted for commercial vehicles, but for the general populace as well.
MOST NOTEWORTHY: The environmental services sector, the machinery and capital goods sector and several bank holding companies were today's noteworthy initiations:
Golfsmith International Holdings Inc (NASDAQ: GOLF) was initiated at Wedbush with a Buy rating and $8.75 target, as the firm believes the company is an attractive growth story and buyout candidate.
Pharmasset Inc (NASDAQ: VRUS) was initiated with a Buy rating and $12 target at Banc of America, as the firm believes Clevudine has the potential to be best in class for the treatment of the hepatitis B virus.
Ciena Corporation (NASDAQ: CIEN) was initiated with an Outperform rating and $40 target at Piper Jaffray.
Waste Management Inc. (NYSE: WMI) raised its hostile bid for smaller rival Republic Services Inc. (NYSE: RSG) by more than 8% to $6.73 billion, a premium that should be enough to scuttle Republic's $6.24 billion purchase of Allied Waste Industries Inc. (NYSE: AW).
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